This is an article written by Priyanka Shah
What is Intraday trading
Intraday trading is among the most popular investment strategies that many investors follow.
As the name suggests, intraday trading involves buying shares in the markets during the market hours and settling all trades before the closing bell.
The idea behind trading on a daily basis is to benefit from the price volatility and make a profit.
Even though this approach is the riskiest among all investment plans, it still has the potential to deliver decent returns in a matter of hours.
If you are contemplating the idea of intraday trading, then you should definitely consider the following tips:
1.Invest what you can afford to lose
Let’s be realistic – intraday trading is highly risky.
If you are just starting out in the exciting world of day-to-day trading, then you are bound to make mistakes.
And it is okay, after all, you learn from your mistakes.
But you should be prepared for the worst-case scenario during intraday trading – losing money.
An unexpected movement in the market can translate into a dramatic fall in prices.
As a result, you should invest the amount that you can afford to lose.
As you gain experience, you will be able to judge the markets better.
Additionally, you must also make use of stop-loss, which brings us to the second point.
2.Learn the importance of stop-loss order
A stop-loss order is an advance order which is automatically triggered to sell a security/stock when its price reaches a particular point.
This is an excellent technique to limit the losses or gains and serves well to keep the emotions at bay.
Needless to mention, it must be followed religiously.
By placing a stop-loss order, you are essentially instructing your broker to sell the shares when its price reaches a limit set by you.
Therefore, if the shares you bought are going down in value, then your losses will be restricted to a particular amount.
By contrast, if the price is going up, then you should book your profits instead of letting greed get the better of you!
This leads us to the third point.
3.Determine your entry and exit points
Before you commence day trading, you must decide when to enter and exit the market.
Over the course of the day, the market fluctuations will impact your psychology and as a result, fear and greed may come into play.
However, you must not let these emotions alter your financial decisions.
With a stop-loss order in place, you should also decide when to sell your shares and exit the markets, before you begin trading.
This may take some doing as you have to observe the market trends.
However, entering these volatile markets with a plan in hand is definitely better than going in unprepared.
4.Choose your shares from a sector you know about
Intraday trading involves closely observing the performance of a scrip.
If you have the knowledge of the sector to which it belongs, such as trends and developments, then your job of tracking the stock becomes fairly easier.
While this technique is not necessary, it certainly helps you in your intraday trading sessions.
5.Always choose two-three stocks with high liquidity
As mentioned earlier, in order to be successful in intraday trading, you must be able to carefully track the performance of each stock to book your profits.
If you have multiple stocks, then it becomes next to impossible to track each trade.
That’s why, it is advisable to focus on only two-three stocks to maintain variety as you move along.
Secondly, you must ensure that the stocks you choose have high trade volume.
This is because if more people are trading that particular stock, then it becomes easier to buy and sell them.
Some of the large-cap shares generally have high trading volume and are fundamentally strong.
These are the shares you should look at for intraday trading.
If you choose small-cap or mid-cap shares, then you may be required to hold those shares for long owing to low liquidity.
You can visit sites like BankBazaar to get an overview of such stocks.
6.Be up-to-date with all the major news and developments
Intraday trade is mainly based on news and its effect on the Indian markets.
If you are well-aware of the situations and developments in India and across the world, then you will be able to predict the direction of the market with confidence.
On the other hand, if you don’t know what is happening in the markets and the world, you will end up losing.
For example, if the US Federal Reserve hikes its interest rates, then the American shares will tumble and its impact will be felt in the Indian markets too.
You can then prepare your trading strategy based on this.
Therefore, such developments – whether they are economic or political, must be followed because it helps you evaluate investors sentiments.
7.Learn intraday trading techniques
Investing in a stock from a long-term perspective is a lot different than buying a stock for the purpose of intraday trading.
The former requires fundamental analysis of the company while the latter needs technical analysis of the stock.Before you get started with intraday trading, you should learn a few intraday trading techniques to help you in your journey.
There are many techniques and indicators to choose from – Candlestick charts, Bollinger bands, Pivot point, Resistance and Support levels, Relative Strength Index, Moving Average Convergence/Divergence, et cetera.
This is likely to take a lot of time, but the effort put in help you execute successful trades.
8.Never buy stocks based on tips and suggestions
If you have recently opened a Demat account, then the chances are you are receiving messages and emails about investing in a particular stock at highly-attractive prices.
We strongly suggest you not to follow those tips as 9 out of 10 times, you are going to lose your money.
Instead, you should buy stocks based on a thorough analysis driven by logic.
Intraday trading is a skill that needs to be mastered in order to achieve maximum results. Just like any other skill, this one needs discipline to be mastered.
If you end up reaching your daily target within just two hours into the trading session, settle the trade and leave instead of trying to execute a new trade.
Similarly, if you have lost money, limit your losses with a stop-loss order and don’t go chasing the losses.
Whatever your trading strategy is, you should stick to it and not let your emotions cloud your judgement.
Intraday trading is a risky affair but the rewards are well worth the risk.
It will take some time to get the hang of it and along the way, you will make mistakes.
Instead of letting them pull you down, learn from them and don’t get sentimental.
Also, having the right knowledge is of paramount importance here.
If you don’t understand the ins and outs of it correctly, intraday trading can be quite detrimental.
All the best!